Insurance Association Proposes 2 Model Gift-Annuity Laws

A national association has proposed a pair of model laws on gift annuities, including one designed to appeal to states that impose few or no restrictions on the popular planned-giving instruments.

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The full texts of the two proposed laws

Gift annuities allow a donor to make a tax-deductible contribution to a charity and collect regular payments from the group until the donor’s death, at which time the non-profit group retains the remaining principal. Older donors receive higher payout rates than younger donors do because they have shorter life expectancies.

Previously, a subcommittee of the National Association of Insurance Commissioners proposed a single model law aimed at regulating gift annuities. But charity officials argued that because the degree of gift-annuity regulation varies among the states, a single proposed law might have prompted states with minimal or no regulations to step up their regulatory efforts and, in some cases, to greatly restrict the ways gift annuities could be invested.

Last week, the insurance association approved two model laws for consideration by the states. One would impose a variety of administrative and financial regulations on charities that sell gift annuities, including a requirement that they maintain sufficient financial reserves to guarantee that annuitants are paid.

The other proposed law, called an “exemption model act,” would require charities that offer gift annuities to notify state officials that they engage in such activity. In addition, a charity that wishes to offer gift annuities must have been in operation for at least three years, have at least $300,000 in available assets, and disclose to donors that annuity payments are backed only by the charity’s assets.

Currently 10 states impose detailed regulations on charities that issue gift annuities. Twenty-five states impose minimal regulation or grant a blanket exemption from insurance law. Fifteen states and the District of Columbia have no laws that specifically cover gift annuities.